Nobody wants to think about their tax bill. As the saying goes, only two things are guaranteed in life — death and taxes. While you can’t escape death, you can do something to reduce your tax burden. If you’re struggling to keep up with your payment due dates and deadlines, taking steps to reduce taxable income is one of the best ways to put more money towards your debts.
In Australia, there are a number of ways to pay less in taxes. This enables you to reach your short-term and long-term financial goals faster, using these savings towards something more important. Nobody wants to pay more in taxes, so we’ve compiled 3 easy ways to reduce taxable income.
1. Claim All Your Deductions
There are a lot of deductions that you can claim to reduce your tax burden. Basically, you can claim a deduction on just about anything related to earning income. Even small things add up to big savings in terms of taxable income. Make sure you’re not leaving any work-related tax deductions on the table. You can claim things like:
- Work-related travel
- Office expenses
- Journals and career publications
- Professional fees
- Work-related education
Keep the receipts for your work-related purchases and stay organised. These are needed when you lodge your tax return. Working with a tax professional is the best way to ensure you’re taking full advantage of all your deductions so you never miss any savings.
2. Give to Charity
If you’re feeling charitable, you can reduce taxable income while also doing some good for the world. When you donate to a registered charity, you’re allowed to deduct any donation over $2. Once you donate, the organisation should send you a receipt. This is what you file away for tax season.
When it’s time to do your taxes, add all of these charitable donations together. You’ll see a “charity donations” section on your return to fill out. These donations don’t become part of your tax refund. However, they are reduced from your taxable income. This helps you get a percentage of your donations back! It pays to do good!
3. Make Super Contributions
Your superannuation is an effective way to put money away for retirement. Your employer pays a percentage of your salary into a super fund, but you have some options for making the most of this money. You can add to your super to save on your taxable income. Concessional super contributions have a tax rate of 15% which is much less than if they were taxed at a marginal rate.
To do this, you can either sacrifice some of your salary to your super or make a personal deductible contribution. Even if you’re self-employed, you can still make contributions to your super to take advantage of this deduction.
Not only will you put more money away for your retirement, but you’ll also save big in the process. It’s all about being smart with your taxable income and making sure your money stretches farther.
How to Make Your Tax Savings Work for You
While saving on your taxable income is a great first step, don’t stop here. Put that money to work to ensure you’re using it to keep your spending on track. There are a lot of things to use your savings for, such as:
- Building an emergency fund
- Paying off your debt faster
- Saving for retirement
- Saving for a holiday
- A rainy-day fund
- Investing (once your bad debts are paid off)
All of these things make your financial situation a little less stressful. While there’s no way to fully escape taxes, you can leverage your savings to work for you. What would you do with a bit more money back in your wallet? Be sure to put your debt payoff and savings goals first. From then, you can use your money to pay for something fun.
However, be mindful of your own situation when looking into these options above. Don’t make more charitable contributions than you can afford, for example, just to save on your taxable income. You’ll want to examine your entire tax situation to see what the smartest choice is for maximum savings. When in doubt, talk to a professional to determine the best course of action for your unique financial plan.
Preparing for Tax Season
As you likely already know, taxes are complicated. While they’re unavoidable, they’re also not easy to understand. Every individual’s income tax is different. When lodging your tax return, you’re constantly trying to reduce taxable income. Luckily, thanks to these 3 options above, there are a few different ways to save big no matter your financial situation.
If you’re unsure what steps to take next, talk to a financial professional. We’re here to help. The experts at Debt Busters can help you create a long-term strategy for saving on your taxable income. In addition, they can put you on the right track to pay off your debts. You don’t have to start tax season alone. Contact us today on 1300 368 322 to start feeling financially free.